Want to Reduce Crime? Get Rid of Cash

Why has crime fallen sharply in the U.S. since the 1990s? One factor might be a decline in the use of cash, say the authors of a new paper published by the National Bureau of Economic Research.

As electronic forms of payment have gained popularity, the proportion of financial transactions involving cash has declined — a trend that has coincidentally overlapped with what is known as the great American crime decline. Furthermore, criminologists and economists have long linked cash with certain kinds of street crimes, noting that dollar bills are easy to hide and reuse.

AFP

“Cash is critical in stimulating street crime because of its liquidity and anonymity. This role in street crimes has long been speculated — but the puzzle has not been solved,” Erdal Tekin, an economist at Georgia State University and one of the paper’s authors, said in an interview.

To test the cash-crime theory, Mr. Tekin, along with a team of researchers, examined Missouri’s implementation of the Electronic Benefit Transfer (EBT) system, in which welfare recipients received their funds in the form of debit cards instead of checks that need to be cashed. Missouri implemented the program between June 1997 and May 1998 in eight phases — hitting some localities before others. The uneven rollout offered researchers the chance to compare the change in crime between counties using debit cards and those using cash.

The results show that the overall crime rate decreased by 9.8% as a result of the program. More specifically, burglary, assault, and larceny — all of which are often financially motivated — dropped by 7.9%, 12.5%, and 9.6%, respectively.

The researchers ran a number of tests to rule out other explanations for the decline. To make sure aggressive law-enforcement strategies weren’t behind the drop, they examined arrest rates and found fewer arrests in counties that were using debit cards (as would be expected if crime levels decreased). They also found that the program didn’t cause spillover effects in neighboring counties, meaning offenders didn’t just pick up and move to where the cash was. And the implementation of debit cards had no effect on the occurrence of rape, a crime that isn’t typically motivated by cash.

While the removal of cash may benefit poorer neighborhoods, which are disproportionately affected by street crime, replacing cash with debit cards and other electronic forms of money might bring in another set of complications. Indeed, there are now virtual ways to make transactions without a paper trail. And electronic payments are already falling prey to sophisticated types of crime, carried out on an unprecedented scale. Just a few months ago, a data hack at Target Corp. captured headlines after millions of debit and credit cards were compromised.

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